* Dollar slides vs currency basket on debt-buying report
* Gold's rise muted against dollar drop, Tuesday's retreat
* Indian gold demand rose as prices dipped, analysts say
(Recasts, adds comments, updates prices, changes
byline/dateline, previous LONDON)
By Frank Tang
NEW YORK, Oct 20 (Reuters) - Gold turned higher on
Wednesday as the dollar fell after an influential consultancy
said the Federal Reserve planned to buy $500 billion of U.S.
Treasuries over six months to spur the economy.
The metal lost 2.5 percent on Tuesday, its biggest one-day
drop since July, after China unexpectedly raised interest
rates. China's move sent the dollar index, a gauge of the
greenback's strength against a basket of six currencies, up
nearly 2 percent. []
On Wednesday, bullion gained less than 1 percent, even as
the dollar index slid 1.3 percent and appeared on track for its
biggest one-day decline in nearly four months.
Gold rose less than the dollar declined partly because the
gold market has been heavily overbought following a near 20
percent rally since mid-July, traders said.
"We're seeing a pretty big move in the dollar to the
downside and we're not seeing that reflected as much in the
gold market to the upside," Jeff Pritchard, an analyst at
Altavest Worldwide Trading, said.
"The market may have gotten ahead of itself and that
correction yesterday put things back in perspective a little
bit. I definitely don't think the uptrend is over, but it might
be a little less fierce upside than we've seen recently."
Spot gold <XAU=> rose 0.6 percent to $1,343.85 an ounce by
1:20 p.m. EDT (1720 GMT). U.S. gold futures for December
delivery <GCZ0> climbed $8.40 an ounce to $1,344.40.
While fresh weakness in the U.S. currency helped prices to
rise back above $1,340 an ounce, the metal's move has been
relatively muted after Tuesday's hefty losses.
Gold, which is denominated in dollars, tends to move in the
opposite direction to the U.S. currency. The 100-day
correlation between bullion and the dollar, however, was a
negative 0.16, Reuters data showed, suggesting their long-term
inverse relationship was weak.
Dollar losses accelerated after a report from consultancy
Medley Global Advisors said the Fed planned to launch a program
to buy $500 billion of U.S. Treasuries over six months and
leave itself room for more purchases. []
The U.S. central bank has said it is prepared to put more
money into the economy if needed to stimulate recovery and
avoid deflation in a process dubbed quantitative easing.
Tom Pawlicki, precious metals and energy analyst at futures
broker MF Global, said gold should benefit from further
monetary easing.
"It still looks very inflationary, and the higher price of
oil today is another inflation indication," he said.
Pawlicki said the fact that gold on Tuesday held above key
chart support at the bottom of its three-month rising channel
near $1,320 prompted technical buyers to enter the market.
PHYSICAL SUPPORT
Gold is likely to be supported in the near term by the
forthcoming Fed meeting and the Indian festival of Diwali, a
major gold-buying event that traditionally brings strong demand
for the metal, Standard Bank analyst Walter de Wet said.
Gold's dip from highs has drawn physical buying in
price-sensitive bullion markets such as India, the world's
biggest consumer of the metal, analysts said.
"The physical community were initially quite hesitant to
buy as gold was abseiling south (on Tuesday), but today we have
seen quite decent physical demand," UBS analyst Edel Tully
said.
"There is quite a lot of pent-up demand out there."
She said physical gold buyers seem to have adjusted the
price at which they are comfortable buying, after purchases in
India in particular sank in 2009 as prices raced to highs.
Silver <XAG=> rose 2.1 percent to $23.82 an ounce, having
also slipped by the most since July 1 on Tuesday with a 4
percent decline. It is still one of the biggest climbers among
precious metals so far this year, up 41 percent.
Platinum <XPT=> traded up 0.9 percent at $1,681.99 an
ounce, while palladium <XPD=> rose 2.5 percent to $587.45.
Prices at 1:59 p.m. EDT (1759 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1344.20 8.20 0.6% 22.6%
US silver <SIZ0> 23.864 0.084 0.0% 41.7%
US platinum <PLF1> 1687.30 9.70 0.6% 14.7%
US palladium <PAZ0> 590.65 12.20 2.1% 44.5%
Gold <XAU=> 1344.70 8.70 0.7% 22.7%
Silver <XAG=> 23.86 0.54 2.3% 41.7%
Platinum <XPT=> 1683.49 15.99 1.0% 14.9%
Palladium <XPD=> 584.50 11.42 2.0% 44.1%
Gold Fix <XAUFIX=> 1339.00 -1.50 -0.1% 21.3%
Silver Fix <XAGFIX=> 23.71 -55.00 -2.3% 39.6%
Platinum Fix <XPTFIX=> 1670.00 4.00 0.2% 13.9%
Palladium Fix <XPDFIX=> 581.00 5.00 0.9% 44.5%
(Additional reporting by Jan Harvey and Elizabeth Fullerton in
London; Editing by Dale Hudson)
